Joy Mfg. Co. v. CGM Valve & Gauge Co., Inc.

• Decision Date: 15 November 1989
• Docket Number: Civ. A. No. CA-H-85-6950.
• Parties: JOY MANUFACTURING COMPANY, Plaintiff, v. CGM VALVE & GAUGE CO., INC. and American Energy Valve, Inc., Defendants.
• Court: U.S. District Court — Southern District of Texas

730 F. Supp. 1387

JOY MANUFACTURING COMPANY, Plaintiff, v. CGM VALVE & GAUGE CO., INC. and American Energy Valve, Inc., Defendants.

Civ. A. No. CA-H-85-6950.

United States District Court, S.D. Texas, Houston Division.

May 30, 1989.

Final Judgment August 3, 1989.

Amended Final Judgment November 15, 1989.

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Alan D. Rosenthal, Thomas H. Adolph, Richard S. Siluk, Baker & Botts, Houston, Tex., for plaintiff.

Charles R. Dunn, Richard P. Hill, Dunn, Kacal, Adams, Pappas & Law, Houston, Tex., for defendants.

HOYT, District Judge.

The plaintiff, Joy Manufacturing Company,¹ brought this suit against CGM Valve & Gauge Co., Inc. ("CGM") and American Energy Valve, Inc. ("AEV") on the following claims:

(1) federal trademark infringement under 15 U.S.C. § 1114(1) (Count I of the complaint);

(2) the use of counterfeit marks under 15 U.S.C. §§ 1116(d) and 1117(b) (Count II of the complaint);

(3) patent infringement under 35 U.S.C. § 271 (Count VI of the complaint);

(4) false marking under the patent laws, 35 U.S.C. § 292 (Count VII of the complaint); and (5) copyright infringement under 17 U.S.C. §§ 106 and 501 (Count VIII of the complaint).

Counts III to V of the complaint have been dropped, and a settlement has been reached as to one of the patents in suit. As to the remaining claims, the Court finds that the plaintiff is entitled to injunctive relief, to an award of damages, the defendants' profits, costs and attorneys' fees, and to prejudgment and postjudgment interest.

I. FINDINGS OF FACT

A. Trademark Infringement and the Use of Counterfeit Marks by CGM.

1. For many years, the plaintiff and its predecessors have been engaged in the manufacture and sale of valves in interstate commerce and throughout the world under the marks "WKM" and "W-K-M" (the "WKM" marks). (PX 1-4) By virtue of this long and continuous use, the marks have become widely known and recognized in the valve industry and are assets of substantial value to the plaintiff.

2. The plaintiff owns the following U.S. trademark registrations for the WKM marks for valves, valve parts and related products, and for the repair, remanufacture, testing, reconditioning and servicing of valves and valve parts:

                Mark    Registration No.       Date
                W-K-M        400,326       March 2, 1943
                W-K-M        658,203       February 11, 1958
                WKM          675,862       March 24, 1959
                W-K-M      1,155,072       May 19, 1981
                

These registrations are incontestable under 15 U.S.C. § 1065.

3. Defendant CGM is engaged, among other things, in the business of buying and selling used and surplus valves, which are reconditioned or repaired by CGM prior to sale. Many of those valves have undergone substantial wear and deterioration, so that they require the remachining or replacement of parts before they can be resold.

4. Among the used and surplus valves that are reconditioned and sold by CGM are valves that were originally manufactured and sold by the plaintiff or its predecessor under the WKM marks. After reworking the used or surplus WKM valves, CGM's practice is to clean and paint the valves and to affix new, unauthorized WKM nameplates to make them look like new WKM valves. The valves are not marked as used or surplus valves, and prior to this lawsuit the valves were not marked to show that they had been reconditioned or remanufactured by CGM. The valves are sold by CGM as WKM valves, even though neither the plaintiff nor its predecessor has any part in reconditioning the valves. The evidence shows that CGM has sometimes sold such reconditioned valves as new WKM valves.

5. CGM's records show that it purchased from a nameplate manufacturer at least 1,821 unauthorized WKM nameplates, only 595 of which remain. (PX 10, 11, 12, 14, 63, Pat Elliott Testimony) In light of the evidence introduced at the trial and the lack of any other plausible explanation, the Court infers that the other majority of the 1,226 nameplates were used on valves that were sold by CGM.

6. CGM also has placed on its valves the monogram of the American Petroleum Institute (the "API"), an institution that sets standards for the oil industry. The use of the API monogram is permitted only after screening and authorization by the API. Although CGM has never been authorized to use the API monogram, it has affixed that monogram to the unauthorized WKM nameplates used on its reconditioned valves. This practice gives the impression that the reconditioned valves are genuine WKM valves that meet API standards.

7. CGM sells its reconditioned valves as the original article even though many of the valves, after reworking by CGM, no longer meet the specifications of the original manufacturer. This practice creates an unreasonable risk of damage to property or of injury or death to nearby persons. The evidence shows that if a valve is used at a working pressure for which it is not suited, it can lead to an explosive valve failure. CGM's unauthorized use of the plaintiff's trademarks on such valves is likely to result in irreparable injury to the plaintiff's reputation and goodwill.

8. The Court finds that as a result of the activities of companies such as CGM selling counterfeit valves, WKM has been forced to institute a strict policy of marking and etching each WKM part for traceability and determinations of authenticity. This additional practice has resulted in increased expense to plaintiff.

9. The Court finds that CGM's actions have been willful and deliberate. The evidence shows a systematic pattern of such activities by CGM. This is not the first time that CGM has been sued for using counterfeit nameplates on reconditioned valves or for selling used valves as new valves. As a result of other lawsuits against CGM, CGM was fully aware that these practices are unlawful. Nevertheless, even after being enjoined from such acts in a number of cases, CGM has continued to use counterfeit nameplates of other valve manufacturers on its reconditioned valves.

10. The Court finds that the deliberate and willful nature of CGM's actions is also evidenced in other activities. Ed Carney of Export Oilfield testified that Larry Elliott, Vice President of CGM, and a salesman of CGM represented that WKM valves purchased by Export Oilfield from CGM were new, unused WKM valves when in fact the valves were used, reconditioned valves having counterfeit nameplates. Sam Gonzalez, an investigator hired by plaintiff to purchase WKM valves from CGM, testified that he placed a purchase with CGM for new valves. The purchase order submitted to CGM by this investigator specified that the valve must be new. Lew Babbidge, an employee of plaintiff, testified at the preliminary injunction hearing that the valves delivered to the WKM investigator were used, reconditioned valves. Further, the valves delivered bore nameplates misrepresenting the metal of which the valves were made.

11. The willful and deliberate nature of CGM's actions is also evidenced by the fact that CGM, at one time before 1983, stamped all remanufactured valves with CGM logo. (Pat Elliott testimony, PX 67) When CGM ceased this practice, it continued to repaint its remanufactured valves with the manufacturer's colors and with counterfeit nameplates. By preparing its remanufactured valves in this way, CGM enabled itself, or alternatively, CGM enabled its own customers, to sell the remanufactured WKM valves as new, unused WKM valves. The president of CGM, Pat Elliott, admitted that in fact some of CGM's customers have sold CGM remanufactured valves as factory new valves.

12. The evidence also shows that CGM's president, when questioned by Cooper Industries about the use of unauthorized nameplates bearing Cooper's DEMCO trademark, originally denied that CGM had such nameplates. (PX 112) At the time, CGM had in its possession counterfeit DEMCO nameplates and had used a large number of them on its remanufactured valves.

13. The evidence shows that CGM has violated the preliminary injunction that was entered in this case on April 7, 1986. (Pat Elliott testimony) Under the terms of that injunction, CGM was enjoined from selling or distributing any valves bearing the WKM trademarks unless they were new, unused, and unreconditioned valves, or unless they bore nameplates permanently affixed to the valve bodies prominently displaying substantially the following notice:

THIS VALVE DISMANTLED, INSPECTED AND REMANUFACTURED BY CGM VALVE CO., INC.

Although CGM has continued to sell remanufactured WKM valves since that time, it has never used the form of nameplate required by the preliminary injunction.

14. From December 31, 1983 through April 7, 1986, CGM sold 195 remanufactured valves and received sales revenue from these valves of $251,824.40. From April 7, 1986 to the present, CGM has sold at least 122 WKM remanufactured valves and received a sales revenue of $262,544.50. CGM introduced no evidence at trial of its expenses in connection with any of its sales of WKM remanufactured valves.

B. Patent Infringement by AEV.

15. Plaintiff is the owner of U.S. Patent No. 4,477,055 (the " '055 patent") for a top-entry ball valve. (PX 6) The '055 patent was issued by the U.S. Patent & Trademark Office on October 16, 1984.

16. In May 1984, before the '055 patent had issued, defendant AEV hired JDS Engineering to help AEV design and manufacture a copy of the plaintiff's top-entry ball valve. Sometime in late 1984 or early 1985, AEV began selling those valves to the public. The valves made and sold by AEV are substantially identical to the plaintiff's patented valve and fall directly within the claims of the '055 patent.

17. The plaintiff's predecessor gave AEV notice of the '055 patent and its relevance to the AEV valve. However, AEV made no changes to its valve after receiving that notice. AEV is still making and selling its copies of the plaintiff's patented valve.

18. Defendants submitted to the Court a large number of patents relating...